Agreement of Sale Contract in Hawaii

An agreement of sale contract Hawaii is a contract used in real estate deals.6 min read

An agreement of sale contract Hawaii is a contract used in real estate deals. It allows a buyer to purchase a property by paying its worth in monthly installments that have been mutually agreed-upon with the owner. In Hawaii, the property's ownership rights are officially transferred only after all monthly payments have been made.

The practice was widely used throughout the 1970s and the early part of the 1980s. After the burst of the real estate bubble, caused by banks issuing loans and mortgages to people and institutions that were unable to pay them off, regulations became significantly more prohibitive. This resulted in the resurgence of the agreement of sale contract.

How an Agreement of Sale Works

From the property owner's perspective, an agreement of sale is a contract that clearly specifies that the property is to be sold to a certain buyer and monthly payments will be made until the property is paid off in full. Although the property's deed is usually transferred to its new owner only after all payments have been made, an upfront ownership change is possible. This would give the initial owner the option to foreclose on the deal if payments are not made in due time, effectively acting as a bank.

An agreement of sale is widely used by people who cannot get a bank loan. It is usually a deal that benefits both sides: The buyer gets the desired piece of real estate and the seller gets a constant, guaranteed income. The agreement must be put in writing and recorded with the Bureau of Conveyances. It should also contain every detail of the deal, including penalties for each party if they don't respect the agreement.

Advantages of the Agreement of Sale

It is a way for sellers to reduce the amount of taxes they owe. If yearly income exceeds $400,000, a 20 percent additional federal tax must be paid. In this scenario, selling a property would most likely make an owner step over the $400,000 mark. If, however, the property is paid in low, monthly installments, the chances of the seller's income exceeding that amount drop considerably.

If the seller's income can be predicted over a period of a few years, it's a way to arrange payments so total income doesn't exceed $400,000.

From the buyer's point of view, the main advantage is that even though a small amount of money is paid initially, depreciation on investment property can be taken from the first year and used as a tax deduction, based on the full purchase price.

The seller can act as a bank and charge interest on the payments.

Disadvantages of the Agreement of Sale

Taxes cannot be deferred for an amount higher than $5 million.

If you're a real estate sales professional, such as a real estate developer, you cannot use an agreement of sale to defer taxes.

Specific legal clauses prevent the abuse of an agreement of sale. An example of such an abuse would be using an agreement of sale to sell a property to a family member. That person, in turn, sells the property at full price and avoids paying taxes since technically there was no gain.

If the property depreciated during the initial ownership, that person might have to pay a large depreciation tax. This could prove difficult when the seller only receives a relatively small monthly fee from the buyer.

Resolving Agreement of Sale Disputes

In a potential dispute over an agreement, the law in Hawaii tends to protect the buyer's rights. Due to the complexity and difficulty of Hawaiian real estate laws, matters such as agreement of sale contracts should be dealt with under a real estate attorney's guidance, for both sides involved. Given the large value and implications of such an agreement, and also because the deal relies on a written contract, one incorrect or vague clause can lead to expensive, time-consuming, and emotionally draining consequences for the parties involved in the deal.

If you need help with an agreement of sale contract in Hawaii, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.

An agreement of sale contract Hawaii is a contract used in real estate deals. It allows a buyer to purchase a property by paying its worth in monthly installments that have been mutually agreed-upon with the owner. In Hawaii, the property's ownership rights are officially transferred only after all monthly payments have been made.

The practice was widely used throughout the 1970s and the early part of the 1980s. After the burst of the real estate bubble, caused by banks issuing loans and mortgages to people and institutions that were unable to pay them off, regulations became significantly more prohibitive. This resulted in the resurgence of the agreement of sale contract.

How an Agreement of Sale Works

From the property owner's perspective, an agreement of sale is a contract that clearly specifies that the property is to be sold to a certain buyer and monthly payments will be made until the property is paid off in full. Although the property's deed is usually transferred to its new owner only after all payments have been made, an upfront ownership change is possible. This would give the initial owner the option to foreclose on the deal if payments are not made in due time, effectively acting as a bank.

An agreement of sale is widely used by people who cannot get a bank loan. It is usually a deal that benefits both sides: The buyer gets the desired piece of real estate and the seller gets a constant, guaranteed income. The agreement must be put in writing and recorded with the Bureau of Conveyances. It should also contain every detail of the deal, including penalties for each party if they don't respect the agreement.

Advantages of the Agreement of Sale

It is a way for sellers to reduce the amount of taxes they owe. If yearly income exceeds $400,000, a 20 percent additional federal tax must be paid. In this scenario, selling a property would most likely make an owner step over the $400,000 mark. If, however, the property is paid in low, monthly installments, the chances of the seller's income exceeding that amount drop considerably.

If the seller's income can be predicted over a period of a few years, it's a way to arrange payments so total income doesn't exceed $400,000.

From the buyer's point of view, the main advantage is that even though a small amount of money is paid initially, depreciation on investment property can be taken from the first year and used as a tax deduction, based on the full purchase price.

The seller can act as a bank and charge interest on the payments.

Disadvantages of the Agreement of Sale

Taxes cannot be deferred for an amount higher than $5 million.

If you're a real estate sales professional, such as a real estate developer, you cannot use an agreement of sale to defer taxes.

Specific legal clauses prevent the abuse of an agreement of sale. An example of such an abuse would be using an agreement of sale to sell a property to a family member. That person, in turn, sells the property at full price and avoids paying taxes since technically there was no gain.

If the property depreciated during the initial ownership, that person might have to pay a large depreciation tax. This could prove difficult when the seller only receives a relatively small monthly fee from the buyer.

Resolving Agreement of Sale Disputes

In a potential dispute over an agreement, the law in Hawaii tends to protect the buyer's rights. Due to the complexity and difficulty of Hawaiian real estate laws, matters such as agreement of sale contracts should be dealt with under a real estate attorney's guidance, for both sides involved. Given the large value and implications of such an agreement, and also because the deal relies on a written contract, one incorrect or vague clause can lead to expensive, time-consuming, and emotionally draining consequences for the parties involved in the deal.

If you need help with an agreement of sale contract in Hawaii, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.

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